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harvard   University.    CTr>9dur:te    school 
of   biisineas    Rcir^lnistrr^tlon .    r3iu'^^u 
of    husinens   rn search 
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PUBLICATION  OF  THE   GRADUATE  SCHOOL  OF 
BUSINESS  ADMINISTRATION,  HARVARD  UNIVERSITY 


VOL.  VI.  NO.  3  CAMBRIDGE.  MASS.  JULY.  1920 


BULLETIN  NO.  20 
BUREAU  OF  BUSINESS  RESEARCH 


Operating  Expenses  in 
Retail  Shoe  Stores  in  1919 


'   C  R  A   r:::,  N/ 


T*!!  imi  "*''  ^^^ 


CAMBRIDGE 

HARVARD  UNIVERSITY  PRESS 

1920 


BULLETINS  OF  THE  BUREAU  OF  BUSINESS  RESEARCH 

1.  Object  and  History  of  the  Bureau,  with  Some  Preliminary  Figures 
on  the  Retailing  of  Shoes  Out  of  Print 

2.  Harvard  System  of  Accounts  for  Shoe  Retailers        Price  60  cents 

3.  Harvard  System  of  Accounts  for  Retail  Grocers        Price  60  cents 

4.  Depreciation  in  the  Retail  Shoe  Business  Price  60  cents 

5.  Expenses  in  Operating  Retail  Grocery  Stores — 1914    Out  of  Print 

6.  Harvard  System  of  Accoimts  for  Shoe  Wholesalers  Price  60  cents 

7.  Harvard  System  of  Stock-keeping  for  Shoe  Retailers 

Price  60  cents 

8.  Operating  Accounts  for  Wholesale  Grocers  Price  $1.00 

9.  Operating  Expenses  in  the  Wholesale  Grocery  Business — 1916 

Price  60  cents 

10.  Management  Problems  In  Retail  Shoe  Stores — 1913-17 

Price  60  cents 

11.  System  of  Operating  Accoiuts  for  Hardware  Retailers 

Price  60  cents 

12.  Operating  Expenses  in  Retail  Hardware  Stores  — 1917-18 

Price  60  cents 

13.  Management  Problems  In  Retail  Grocery  Stores — 1918 

Price  Sl.OO 

14.  Methods  of  Paying  Salesmen  and  Operating  Expenses  in  the 
Wholesale  Grocery  Business  in  1918  Price  $1.00 

15.  Operating  Accounts  for  Retail  Jewelry  Stores  Price  $1.00 

16.  Operating  Accounts  for  Retail  Drug  Stores  Price  $1.00 

17.  International  Comparisons   of  Prices  of   Cotton  Cloth,  January 
1919  to  March  1920  Price  $1.00 

18.  Operating  Expenses  in  Retail  Grocery  Stores  in  1919    Price  $1.00 

19.  Operating  Expenses  in  the  Wholesale  Grocery  Business  hi  1919 

Price  $1.00 

20.  Operating  Expenses  in  Retail  Shoe  Stores  in  1919        Price  $1.00 


BULLETIN  NO.  20 
BUREAU  OF  BUSINESS  RESEARCH 


Operating  Expenses  in 
Retail  Shoe  Stores  in  1919 


CAMBRIDGE 
HARVARD  UNIVERSITY  PRESS 

1920 


COPYRIGHT,  1920 
HARVARD  UNIVERSITY  PRESS 


PRINTED  AT  THE  HARVARD  UNIVERSITY  PRESS 
;'•    -'■      fcXSIBRirDQE,  MA3S.,-U.  S.  A. 


OPERATING  EXPENSES 
IN  RETAIL  SHOE  STORES  IN  1919 

INTRODUCTION 

This  bulletin  presents  an  analysis  of  the  reports  received  by 
the  Bureau  of  Business  Research  from  one  hundred  ninety- 
seven  retail  shoe  stores  for  the  year  1919.  These  stores  were 
located  in  thirty-seven  states,  Hawaii,  and  Canada.  Of  these 
stores,  one  hundred  thirty  had  furnished  reports  previously 
and  one  hundred  four  furnished  reports  for  both  1918  and 
1919.  From  the  reports  of  this  latter  group,  several  com- 
parisions  have  been  worked  out  to  indicate  changes  that 
have  taken  place  in  the  trade  during  the  last  year. 

VOLUME  OF  SALES 

The  store  with  the  smallest  volume  of  business,  from  which 
a  report  was  received  in  1919,  had  annual  sales  of  $10,700. 
The  store  with  the  largest  volume  of  business  had  sales  of 
$1,940,000.  A  report  also  was  received  from  a  company 
operating  a  chain  of  stores  with  aggregate  sales  exceeding 
$3,000,000. 

In  the  following  table  the  stores  are  grouped  according  to 
their  annual  net  sales  in  1919.  The  number  of  stores  whose 
volume  of  sales  falls  in  each  group  is  indicated. 


45G775 


Net  Sales,  1919  Number  of  stores 

Less  than  120,000 13 

$20,000-29,000 18 

30,000-39,000 26 

40,000-49,000 18 

50,000-59,000 23 

60,000-69,000 14 

70,000-79,000 10 

80,000-89,000 6 

90,000-99,000 7 

100,000-109,000 8 

110,000-119,000 '. .  4 

120,000-129,000 6 

130,000-139,000 5 

140,000-149,000 1 

150,000  and  over 38 

Among  the  stores  that  furnished  reports  for  both  1918 
and  1919,  only  three  stores  showed  smaller  net  sales  in  1919. 
The  heaviest  decrease  was  15.7  %.  Omitting  four  stores  that 
opened  branches  during  the  year,  an  increase  in  net  sales  was 
shown  by  ninety-seven  stores.  In  several  instances  the  in- 
crease was  slight;  in  other  cases  it  was  large.  The  greatest 
increase  in  net  sales  in  1919.  over  1918  was  66%.  Of  the 
ninety-seven  stores,  eighty  showed  an  increase  in  net  sales  in 
1919  between  10%  and  50%.  In  twenty-one  stores  the  in- 
crease in  net  sales  in  1919  was  between  10%  and  19.9%;  in 
twenty-seven  stores  between  20%  and  29.9%;  in  eighteen 
stores  between  30%  and  39.9%;  and  in  fourteen  stores  be- 
tween 40  %  and  49.9  %.  The  average  increase  in  net  sales  in 
1919  was  about  25  %  of  the  net  sales  in  1918. 

With  the  rise  in  prices  during  the  last  year,  the  increase  in 
net  sales  does  not  indicate  accurately  the  relative  number  of 
pairs  of  shoes  sold.  Consequently,  an  inquiry  was  made  this 
year  as  to  the  increase  or  decrease  in  the  number  of  pairs  of 
shoes  sold  in  1919  as  compared  with  1918.  The  object  of  this 
inquiry  was  to  learn  how  the  physical  quantity  of  merchan- 
dise sold  compared  in  the  two  years.    This  is  significant, 


5 

because  the  number  of  pairs  of  shoes  sold,  rather  than  the 
vahic  of  the  shoes  as  expressed  in  net  sales,  indicates  the 
number  of  customers  served.  From  the  long-run  standpoint, 
the  number  of  customers  served  is  fully  as  important  to  the 
shoe  retailer  as  the  volume  of  sales  measured  in  dollars  and 
cents. 

From  forty-four  stores  a  definite  answer  was  received  to 
the  question  regarding  the  increase  or  decrease  in  the  number 
of  pairs  of  shoes  sold  in  1919  as  compared  with  1918.  In 
eighteen  stores  the  number  of  pairs  of  shoes  sold  in  1919  was 
less  than  the  number  sold  in  1918,  although  the  value  of  sales 
in  dollars  and  cents  was  greater  in  nearl}^  every  case  that 
could  be  tested.  One  store  reported  a  decrease  of  30  %  in  the 
number  of  pairs  of  shoes  sold.  Two  stores  reported  a  de- 
crease of  20%,  seven  stores  a  decrease  of  10%  to  15%,  and 
eight  stores  a  decrease  of  less  than  10%. 

From  twenty-six  stores  an  increase  in  the  number  of  pairs 
of  shoes  sold  in  1919  was  reported.  In  eleven  stores  the  in- 
crease in  the  number  of  pairs  of  shoes  sold  was  less  than  10  % 
of  the  1918  sales.  In  ten  stores  the  increase  was  between  10  % 
and  16%;  in  four  stores  20%;  and  in  one  store  35%. 

There  is  no  reason  to  suppose,  so  far  as  the  Bureau  can 
judge,  that  the  experience  of  the  merchants  who  furnished 
this  specific  information  was  very  different  from  that  of  other 
shoe  retailers.  If  this  be  true,  it  is  apparent  that  the  in- 
crease in  net  sales  in  1919  was  due  more  largely  to  the  rise  in 
the  prices  of  shoes  than  to  the  changes  in  the  number  of  pairs 
of  shoes  sold. 

In  order  to  determine  the  kind  of  merchandise  sold  in  1919, 
an  inquiry  was  made  regarding  the  sales  of  men's,  women's, 
and  children's  shoes,  rubbers,  findings,  and  hosiery.  Each 
merchant  was  asked  to  state  the  percentage  of  each  kind  of 
merchandise  to  the  total  sales  of  his  store. 

In  a  majority  of  the  stores  the  sales  of  men's  shoes  were 
from  25%  to  30  7c  of  the  total  sales.    In  only  one-eighth  of 


6 

the  stores  did  sales  of  men's  shoes  amount  to  40  %  or  more  of 
the  sales. 

Women's  shoes  constituted  about  50  %  of  the  total  sales 
in  a  majority  of  the  stores  from  which  reports  were  received 
by  the  Bureau.  Only  two  merchants  stated  that  their  sales 
of  women's  shoes  were  less  than  30  %  of  their  total  sales. 
A  substantial  number  reported  that  their  sales  of  women's 
shoes  were  more  than  60%. 

The  sales  of  children's  shoes  generally  were  from  12  %  to 
25  %  of  the  total  sales.  In  over  one-half  the  stores  the  sales 
of  children's  shoes  were  not  over  15  %  of  the  total  volume 
of  business. 

The  sales  of  rubbers  generally  were  less  than  10  %  of  the 
total  sales  and  in  many  stores  not  over  6  %. 

The  sales  of  findings  apparently  constituted  a  small  por- 
tion of  the  sales  in  retail  shoe  stores,  generally  about  2  %  or 
3  %  of  the  net  sales. 

The  sales  of  hosiery  in  retail  shoe  stores  also  were  small  ac- 
cording to  the  reports.  For  twenty -four  stores  information 
was  furnished  regarding  their  hosiery  sales,  and  in  all  but  one 
of  these  stores,  the  sales  of  hosiery  were  less  than  10  %  of  the 
total  sales.  In  over  one-half  the  stores  the  sales  of  hosiery 
were  less  than  5  %  of  the  total  volume  of  business. 

OPERATING  EXPENSES 

Beginning  with  the  figures  for  1918,  the  Bureau  has  made 
two  changes  in  the  expense  accounts  to  facilitate  compari- 
sons. These  changes  relate  to  buying  and  management  ex- 
pense and  to  interest. 

Buying  expense  is  provided  for  as  a  separate  account  in 
the  System  of  Accounts  for  Shoe  Retailers.  Inasmuch  as 
buying  is  a  distinct  function  in  a  retail  shoe  store,  there  are 
advantages  in  keeping  the  buying  expense  separate  from 
management  expense  even  if  this  necessitates  a  division  of 


the  proprietor's  or  manager's  salary.  Nevertheless,  the 
Bureau  has  found  that  comparatively  few  shoe  retailers  are 
disposed  at  the  present  time  to  keep  separate  accounts  for 
buying  expense.  Under  these  circumstances,  better  figures 
for  purposes  of  comparison  are  obtained  by  combining  buying 
and  management  expense  in  the  tabulations  for  all  stores. 
Hence,  in  the  reports  received  for  1918  and  1919;  buying  ex- 
pense has  been  combined  with  management  expense.  Sal- 
aries and  wages  of  buying  force  are  included  with  manage- 
ment and  office  salaries  under  the  heading  Buying,  Manage- 
ment, and  Office  Salaries.  Other  buying  expense  is  included 
with  office  supplies  and  other  management  expense  under  the 
heading  Office  Supplies,  Other  Buying  and  Management 
Expense.  Any  shoe  merchant  who  keeps  these  items  separate 
can  readily  combine  them  in  order  to  compare  his  own  figures 
with  those  given  in  the  following  summary. 

The  second  modification  of  the  expense  accounts  is  the 
inclusion  of  interest,  both  on  borrowed  capital  and  on  the 
proprietor's  net  investment,  in  expense.  This  is  in  accord- 
ance with  the  poUcy  that  has  been  adopted  by  the  Bureau  in 
its  accounting  systems  for  the  other  retail  and  wholesale 
trades  that  it  is  studying.  Interest  on  borrowed  capital  is 
determined  as  is  explained  in  the  accounting  system  for 
shoe  retailers.  Interest  on  owned  capital  is  the  interest  on 
the  net  investment  or  net  worth  of  the  business,  exclusive 
of  real  estate.  The  value  of  real  estate  is  excluded  in  de- 
termining the  interest  on  owned  capital  because  of  the  fact 
that  the  charge  for  the  use  of  owned  real  estate  is  included 
under  Rent. 

Every  business  should  yield  the  owner  interest  at  a  fair 
rate  on  the  capital  that  he  has  invested.  For  the  purposes  of 
its  investigations,  the  Bureau  has  decided  that  this  interest 
charge  should  be  reckon(Ml  as  an  item  of  expense.  The  capi- 
tal, if  not  used  in  the  Ixisiness,  could  l^e  invested  elsewhere 
and  obtain  a  normal  rate  of  interest.    By  including  interest 


in  expense,  furthermore,  experience  has  shown  that  oppor- 
tunities for  economy  in  the  use  of  capital  are  emphasized. 

The  average  net  investment  on  which  interest  is  charged 
here  is  the  average  net  worth  of  the  business  for  the  year,  not 
including  real  estate.  The  net  investment  is  the  sum  of  the 
assets  (not  including  real  estate)  less  the  sum  of  the  liabili- 
ties to  outsiders  (not  including  capital  stock  or  surplus  of  a 
corporation  or  undivided  profits).  The  assets  include  cash, 
inventory  of  merchandise  on  hand,  equipment  at  depreciated 
value,  notes  and  accounts  receivable,  and  prepayments  such 
as  prepaid  insurance.  Good-will  is  not  included  unless  pur- 
chased outright.  The  liabilities  include  notes  and  accounts 
payable  and  accrued  items,  such  as  unpaid  taxes  (not  mort- 
gage on  real  estate).  A  corporation  determines  its  net  in- 
vestment in  the  same  way  as  a  proprietorship  or  a  partner- 
ship, irrespective  of  the  amovmt  of  capital  stock  issued.  The 
capital  stock  authorized  may  or  may  not  equal  the  net  in- 
vestment ;  hence  the  net  investment  is  determined  inde- 
pendently. The  rate  of  interest  used  in  calculating  the 
amount  to  be  debited  to  interest  on  owned  capital  is  the 
ordinary  rate  on  long-time,  reasonably  secure  investments 
in  the  locality  in  which  the  business  is  situated.  The  ac- 
count for  Interest  on  Capital  —  Owned  is  credited  with  in- 
terest received  on  bank  balances. 

For  bookkeeping  purposes,  the  amounts  that  are  debited 
to  Interest  on  Capital  —  Owned  are  credited  to  Miscellaneous 
Profits  and  Losses,  the  same  account  to  which  rent  of  a  build- 
ing that  is  owned  is  credited.^ 

The  following  table  gives  a  summary  of  the  operating  ex- 
penses in  retail  shoe  stores  in  1919.  For  each  item  of  expense 
the  lowest,  highest,  and  common  figures  are  stated.  The  lowest 
figure  for  each  item  is  the  lowest  found  in  any  store  for  that 

1  A  more  detailed  explanation  of  the  reasons  for  including  interest 
in  expense  is  given  in  Bulletin  No.  6,  System  of  Accounts  for  Shoe  Whole- 
salers, pp.  27-33.    That  statement  was  published  in  1916. 


particular  item.  No  one  store  had  the  lowest  figure  for  e very- 
item.  Similarity,  no  one  store  had  the  highest  expense  for 
every  item. 

The  common  figure  is  the  figure  that  is  the  most  representa- 
tive. It  is  the  figure  that  is  known  in  statistical  terms  as  the 
mode,  the  point  around  which  all  the  figures  tend  to  con- 
centrate. It  is  worked  out  by  scientific  methods,  which  are 
not  subject  to  influence  by  the  extremes  of  either  the  high 
or  the  low  figures.  The  common  figure  for  each  item,  there- 
fore, is  typical;  it  is  the  figure  to  be  used  for  purposes  of 
comparison. 

The  percentages  in  this  table  are  based  upon  net  sales. 
The  figure  for  net  sales  is  determined  by  deducting  returns 
and  allowances  from  gross  sales.  The  figure  for  net  sales  in- 
cludes both  cash  and  charge  sales  and  represents  the  real 
volume  of  business  done. 

The  following  summary  is  based  upon  the  reports  received 
from  one  hundred  ninety-seven  retail  shoe  stores  for  the 
year  1919. 


10 


OPERATING  EXPENSES  IN  RETAIL  SHOE 
STORES  IN  1919 

Net  Sales  =  100  % 

Lowest  Highest    Common 

Wages  of  Salesforce 4.79  %  14.91  %     8.3  % 

PM's 3.29        0.5 

Advertising 0.03  7.85         1.3 

Wrappings  and  Other  Selling  Expense.  .  .     0.05  1.17        0.2 

Total  Selling  Expense 5.05  17.5         10.3 

Delivery  Expense 1.75        0.3 

Bu>dng,  Management  and  Office  Salaries  .  0.55  9.68  4.2 
Office  Supplies,  Other  Buying  and  Man- 
agement Expense 0.02  2.27  0.3 

Total  Buying  and  Management  Expense  1.27  9.78  4.5 

Rent." 0.59  8.94  2.3 

Heat,  Light,  and  Power 0.11  1.98  0.5 

Insurance  (except  on  buildings) 0.07  1.72  0.5 

Taxes  (except  on  buildings,  income  and 

profits) 0.04  1.67  0.4 

Repairs  of  Store  Equipment 0.01  3.86  0.2 

Depreciation  of  Store  Equipment 0.03  2.48  0.3 

Total  Interest 0.45  8.49  2.9 

Total  Fixed  Charges  and  Upkeep  Expense  3.41  15.36  7.4 

Miscellaneous  Expense 0.07  4.79         1.1 

Losses  from  Bad  Debts 1.95        0.2 

Total  Expense 13.62        35.63      24.0 

Total  Expense 

In  1919  the  total  expense  of  operation  in  these  retail  shoe 
stores  ranged  from  13.62  %  to  35.63  %  of  net  sales.  The  com- 
mon figure  was  24  %. 

Grouping  the  stores  according  to  the  volume  of  sales,  it 
appears  that  in  the  stores  with  sales  between  $30,000  and 
$59,000  a  year  in  1919,  the  common  figure  for  total  expense 


11 

was  about  23.1  ^/c  of  net  sales.  In  stores  with  sales  less  than 
$30,000  a  year,  the  total  expense  generally  was  slightly 
under  24  %.  In  the  group  of  stores  with  sales  between  $60,000 
and  $149,000  a  year,  total  expense  commonly  was  about 
25.5%  of  net  sales;  and  in  stores  with  sales  of  $150,000  and 
over,  total  expense  centered  around  25.8  %.  It  is  apparent 
from  these  figures  that  total  expense  was  slightl}-  higher  in 
the  stores  with  a  volume  of  annual  sales  above  $60,000  than 
it  was  in  the  stores  with  annual  sales  of  less  than  $60,000. 

A  comparison  of  the  statements  from  stores  that  reported 
for  both  1918  and  1919  showed  that  total  expense  was  ap- 
proximately the  same  in  percentage  of  net  sales  in  l)oth  years. 

Selling  Expense 

The  largest  single  item  of  expense  in  the  shoe  trade,  as  in 
most  other  retail  and  wholesale  businesses,  is  wages  of  sales- 
force.  This  includes  the  payments  made  to  salespersons  and 
also  a  portion  of  the  proprietor's  or  partners'  salary  in  pro- 
portion to  the  time  spent  in  selling.  In  1919  the  lowest  figure 
for  wages  of  salesforce  was  4.79  %  and  the  highest  figure 
14.91  %  of  net  sales.   The  common  figure  was  8.3  %. 

A  comparison  of  the  reports  from  identical  stores  for  the 
years  1918  and  1919  showed  that  there  was  little  difference  in 
the  expense  for  wages  of  salesforce,  in  percentage  of  net  sales, 
in  these  two  years. 

Advertising  expense  in  1919  varied  from  0.03%  to  7.85% 
of  net  sales.  The  common  figure  was  1.3  %.  This  is  approxi- 
mately the  same  percentage  as  has  been  shown  for  advertis- 
ing in  previous  compilations  by  the  Bureau  for  the  retail 
shoe  trade. 

A  special  incjuiry  was  made  this  j-ear  regarding  the  adver- 
tising mediums  used  by  shoe  retailers.  Answers  to  this  ques- 
tion were  received  from  one  hvmdred  eleven  retailers.  Of 
these,  ninety  reported  that  50  %  or  more  of  their  advertising 
expenditures  were  used  for  newspaper  advertising.    Thirty- 


12 

one  stores,  over  one-fourth  of  the  total,  spent  from  90  %  to 
100  %  of  then*  advertising  expenditures  for  newspaper  space. 

Six  stores  stated  that  they  used  trading  stamps,  with  wide 
variations  in  the  proportion  that  this  item  made  up  in  their 
advertising  expenditures.  In  one  store  trading  stamps  con- 
stituted 2.5%  of  the  advertising  expenditures;  in  another 
store  80%.  Five  stores  reported  the  use  of  premiums;  two 
used  5  %  of  their  advertising  expenditures  for  this  purpose, 
two  10  %,  and  one  29  %.  Forty-five  stores  reported  novelties; 
in  three-fourths  of  these  stores,  not  over  15  %  of  their  ad- 
vertising expenditures  were  used  for  novelties.  Forty -seven 
stores  stated  that  they  used  circular  letters;  over  one-half  of 
them  spent  not  more  than  15  %  of  their  advertising  expendi- 
tures for  such  letters,  and  most  of  the  remainder  not  over 
25  %.  Thirteen  stores  stated  that  they  used  street  car  cards, 
the  proportion  of  their  advertising  expenditures  used  for  this 
purpose  varying  from  2%  to  50%.  In  most  of  the  stores 
from  which  information  was  obtained,  the  advertising  copy 
was  prepared  by  the  proprietor  or  a  partner  in  the  business. 

Wrappings  and  other  selling  expense  ranged  from  0.05  %  to 
1.17%  of  net  sales  in  1919.  The  common  figure  was  0.2%. 
For  total  selling  expense  the  common  figure  in  1919  was 
10.3  %  of  net  sales. 

Buying  and  Management  Expense 

Buying,  management,  and  office  salaries  ranged  from  0.55  % 
to  9.68  %  of  net  sales.  The  common  figure  was  4.2  %.  For 
office  supplies,  and  other  buying  and  management  expense  the 
common  figure  was  0.3  %,  and  for  total  buying  and  manage- 
ment expense  the  common  figure  was  4.5  %  of  net  sales. 

Fixed  Charges  and  Upkeep  Expense 

For  rent,  which  includes  a  charge  whether  the  store  is 
leased  or  owned,  the  common  figure  in  1919  was  2.3  %  of  net 
sales.    In  ninety-seven  identical  stores  the  average  expense 


15 

for  rent  dropped  from  2.7  %  of  net  sales  in  1918  to  ^.3  %  in 
1919.  This  indicates  that,  in  general,  rents  did  not  advance 
as  rapidly  as  the  price  of  shoes  rose.  Numerous  merchants 
held  leases  that  were  not  subject  to  increase  during  the  year. 
As  might  be  expected,  rents  tended  to  be  subject  to  less  rapid 
fluctuation  than  prices  of  merchandise.  As  the  prices  of  mer- 
chandise fall,  furthermore,  the  percentage  of  rent  to  net  sales 
in  retail  shoe  stores  probably  will  become  higher  than  the 
common  figure  in  1919. 

A  special  inquiry  was  made  regarding  the  rent  expense  in  a 
group  of  large  shoe  stores  in  large  cities.  Figures  for  this  item 
were  obtained  from  forty  stores.^  Their  rent  expense  in  per- 
centage of  net  sales  was  as  follows: 

Rent  Number  of  stores 

(Percentage  of  Net  Sales)  (Large  stores  in  large  cities) 

Less  than  2% 5 

2-2.9% 13 

3-3.9     8 

4-4.9      4 

5-5.9     6 

6  %  and  over 4 

From  these  figures,  taken  in  comparison  with  those  that 
have  been  received  from  smaller  cities  and  towns,  it  is  ap- 
parent that  the  difference  in  the  expense  for  rent  in  percent- 
age of  net  sales  between  stores  in  large  cities  and  stores  in 
small  cities  and  towns  was  not  great. 

The  differences  in  the  ratio  of  rent  to  net  sales  for  similar 
stores  cannot  be  explained  in  all  cases  bj'  the  relative  terms  of 
leases.  One  store,  for  example,  in  one  of  the  large  cities 
showed  a  rent  percentage  nearly  twice  as  great  as  the  rent 
figure  for  another  store  located  near  by  on  the  same  street. 
The  amourtt  paid  for  rent  in  actual  figures  was  approximately 
the  same.   The  store  with  the  low  rent  percentage,  however, 

'  The  reports  for  seventocn  of  these  stores  were  incUidecI  in  the  taliu- 
lation  from  which  the  summary  on  page  10  was  prepared. 


14 

had  much  larger  sales  with  the  same  floor  area.  In  other 
words,  it  was  utilizing  its  space  more  economically. 

As  has  already  been  explained,  interest,  both  on  capital 
borrowed  and  on  capital  owned,  is  included  in  expense  in  this 
summary.  Total  interest,  which  is  the  sum  of  interest  on 
borrowed  capital  and  interest  on  owned  capital,  varied  from 
0.45%  to  8.49%  of  net  sales.  The  common  figure  for  total 
interest  was  2.9%. 

Total  fixed  charges  and  upkeep  expense  ranged  from  3.41  % 
to  15.36%  of  net  sales.    The  common  figure  was  7.4%. 

Losses  from  Bad  Debts 

The  common  figure  for  losses  from  bad  debts  in  these  retail 
shoe  stores  in  1919  was  0.2  %  of  net  sales.  It  is  interesting  to 
note  that  in  1919  the  expense  for  losses  from  bad  debts  in  the 
retail  shoe  trade  was  nearly  as  high  as  in  the  retail  grocery 
trade.  The  Bureau's  summary  for  retail  grocery  stores  for 
the  year  1919  showed  a  common  figure  of  0.3  %  of  net  sales 
for  losses  from  l:)ad  dcljts. 


GROSS  AND  NET  PROFIT 

Gross  profit  is  determined  by  deducting  the  cost  of  mer- 
chandise sold  from  net  sales.  The  gross  profit  is  the  margin 
that  covers  all  operating  expenses  and  the  net  profit  of  the 
business.  Net  profit  is  the  amount  that  remains  after  total 
expense  is  deducted  from  gross  profit.  Net  profit,  therefore, 
is  the  reward  that  the  proprietor  receives  for  embarking  in  a 
business  at  his  own  risk  and  the  premium  that  he  gets  for 
good  management.  As  a  rule,  a  high  rate  of  net  profit  is  not 
due  to  a  high  gross  profit  but  rather  to  economical  manage- 
ment of  the  business  as  reflected  in  low  total  expense.  It  also 
may  be  due  to  wise  buying,  which  avoids  loss  through  de- 
preciation and  mark-down  sales. 


15 


In  1919,  the  highest,  lowest,  and  common  figures  for  gross 
and  net  profit  in  one  hundred  ninety-seven  retail  shoe  stores 
were  as  follows: 

Highest  Lowest  Common 

Gross  Profit 45.55%  19.27%  33.1% 

Net  Profit  (or  Loss) ....    Profit  24.7        Loss    2.45  Profit  9.0 

In  the  following  table  the  figures  for  ninety -five  stores  are 
grouped  according  to  the  gross  profit  and  net  profit  that  the 
stores  showed  as  a  result  of  their  operations  in  1918  and  1919. 
The  figures  for  1919  are  from  the  same  stores  as  the  figures  for 
1918,  and  this  table  shows  the  number  of  stores  in  each  group. 
Thus,  in  both  1918  and  1919,  one  store  showed  a  gross  profit 
less  than  20  %  of  net  sales.  Ten  stores  showed  a  gross  profit 
between  20  %  and  24.'9  %  of  net  sales  in  1918  as  compared 
with  eleven  stores  in  this  group  in  1919.  Five  stores  showed  a 
net  loss  in  1918  and  three  had  a  net  loss  in  1919.  The  net 
profit  was  less  than  3  %  of  net  sales  in  eight  stores  in  1918  and 
in  ten  stores  in  1919.  The  table  indicates  similar  compari- 
sons for  the  other  groups. 

Gross  Profit  Number  of  stores 

(Percentage  of  Net  Sales)  1918  1019 

Less  than  20%  1  1 

20-24.9 10  11 

25-29.9 13  13 

30-34.9 45  37 

35-39.9 20  25 

40  %  and  over 6  8 

Net  Profit  for  Loss)  Number  of  stores 

(Percentage  of  Net  Sales)  191S  1919 

Net  loss 0  3 

Net  profit,  less  than  3% 8  10 

"      3-  5.9% 23  15 

"      6-8.9 17  19 

"       9-11.9 21  20 

"     12-14.9 13  15 

15%  and  over 8  13 


16 

In  this  group  of  ninety-five  stores  the  common  figure  for 
gross  profit  was  about  five-tenths  of  one  per  cent  higher  in 
1919  than  in  1918.  The  comparison  of  the  reports  from  these 
identical  stores  showed  that  net  profit  generally  was  also 
about  five-tenths  of  one  per  cent  higher,  in  percentage  of  net 
sales,  in  1919  than  in  1918. 

CASH  DISCOUNTS 

The  i-atio  of  cash  discounts  taken  in  one  hundred  forty-one 
retail  shoe  stores  in  1919  varied  from  0.01  %  to  5.6%  of  pur- 
chases at  billed  cost.  The  common  figure  for  cash  discounts 
taken  was  2%  of  purchases  at  billed  cost.  Although  the 
greatest  concentration  for  all  stores  reporting  was  between 
1.7%  and  2.4%,  centering  around  2%,  nevertheless  enough 
stores  were  outside  this  group  to  indicate  significant  varia- 
tions in  the  practice  of  merchants  in  taking  discounts  and  in 
the  practice  of  manufacturers  and  wholesalers  in  quoting 
discounts.  In  one  group  of  stores  the  cash  discounts  taken 
were  less  than  1  %  of  the  purchases.  With  few  exceptions  the 
volume  of  sales  was  less  than  $50,000  each  in  this  group. 
Another  group  of  stores  showed  cash  discounts  taken  amount- 
ing to  more  than  3  %  of  the  purchases  at  billed  cost.  A  large 
majority  of  the  stores  in  this  group  had  annual  sales  in  1919 
of  more  than  $200,000  each. 

In  the  grocery  trade,  discounts  to  retailers  showed  a  nar- 
rower margin.  In  1919,  the  cash  discounts  taken  ranged  from 
0.01%  to  1.76%  of  purchases  at  billed  cost  in  the  retail 
grocery  stores  from  which  reports  were  received  by  the 
Bureau.  In  selling  to  retail  grocers  the  cash  discount  practice 
has  been  standardized  to  a  high  degree,  but  few  wholesale 
grocers  adhere  to  a  one-price  policy.  In  the  wholesale  shoe 
trade,  the  rate  of  cash  discounts  apparently  is  not  standard- 
ized, but  in  many  instances  it  is  probable  that  cash  discounts 
rather  than  the  basic  prices  are  modified  in  quoting  prices  to 
shoe  retailers. 


17 


STOCK-TURN 

In  1919,  the  lowest  figure  for  stock-turn  was  0.76  times, 
the  highest  4.8  times,  and  the  common  figure  1.8  times  a  year. 
For  the  purposes  of  this  compilation,  stock-turn  is  deter- 
mined by  dividing  the  average  of  the  inventory  at  the  be- 
ginning of  the  year  and  the  inventory  at  the  end  of  the  year 
into  the  net  cost  of  merchantUse  sold.  Inasmuch  as  inventory 
commonly  is  taken  at  a  tinu^  when  the  stock  on  hand  is  low, 
these  figures  tend  to  give  a  result  that  is  somewhat  too  high 
for  the  rate  of  stock-turn. 

A  better  figure  would  be  secured  if  it  were  possible  to  ob- 
tain monthly  inventories  of  merchandise.  This,  however,  is 
not  possible  at  the  present  time,  and  since  the  conditions  are 
similar  in  most  shoe  stones  the  figures  that  are  used  here  are 
probably  fair  for  purposes  of  comparison. 

A  number  of  retail  shoe  stores  in  1919  had  a  stock-turn  of 
less  than  once  a  year.  Inasmuch  as  prices  were  constantly 
advancing  during  the  year,  this  low  rate  of  stock-turn  was 
nuich  less  of  a  disadvantage  than  in  normal  times.  Ordinarily 
a  retail  shoe  store  cannot  show  a  net  profit,  at  least  for  any 
length  of  time,  if  its  rate  of  stock-turn  is  less  than  once  a 
year.  Furthermore,  when  prices  begin  to  decline,  a  slow  rate 
of  stock-turn  is  certain  to  be  a  serious  handicap.  On  a  de- 
clining market  rapid  turnover  is  essential  if  a  business  is  to 
avoid  serious  losses. 

A  comparison  of  the  figures  for  stock-turn  in  ninety-nine 
stores,  which  submitted  statements  for  both  1918  and  1919, 
showed  that  in  these  stores  the  common  figure  for  stock 
turn  was  1.7  times  a  year  in  1918  and  1.8  times  in  1919  —  a 
slight  increase.  In  both  years,  however,  a  substantial  group 
of  stores  tvu-ned  their  stock  more  than  twice  a  year. 

Inasnuich  as  the  retail  shoe  business  is  a  two-season  busi- 
ness, it  might  logically  be  expected  that  practically  every 
well-managed  store  would  turn  its  stock  at  least  once  a  season; 


45G775 


18 

that  is,  twice  a  year.  Enough  stores  are  turning  their  stock 
more  than  twice  a  year  to  indicate  that  a  faster  rate  of  stock- 
turn  than  is  now  being  obtained  in  many  stores  is  practical. 
This  would  hold  for  both  large  and  small  businesses. 

The  stores  with  a  small  volume  of  business  generally  had 
a  lower  rate  of  stock-turn  than  the  stores  with  a  large  volume 
of  business.  In  stores  with  annual  sales  less  than  $30,000, 
the  average  rate  of  stock-turn  was  1.2  times  a  year  in  1919. 
In  stores  with  annual  sales  between  $30,000  and  $59,000,  the 
average  rate  of  stock-turn  was  1.7  times;  in  stores  with  annual 
sales  between  $60,000  and  $149,000,  it  was  1.9  times  a  year; 
and  in  stores  with  annual  sales  of  over  $150,000  the  average 
rate  of  stock-turn  was  2.1  times  a  year.  In  sixteen  stores  the 
annual  rate  of  stock-turn  was  three  times  or  more  in  1919. 

In  stores  with  a  low  rate  of  stock-turn,  total  expense 
was  higher  than  in  stores  with  a  high  rate  of  stock-turn  in 
1919.  In  stores  with  a  rate  of  stock-turn  less  than  1.3 
times  a  year,  the  common  figure  for  total  interest  was  4.1  % 
of  net  sales.  In  stores  with  a  stock-turn  of  2.5  times  or 
more  a  year,  the  common  figure  for  total  interest  was  1.65  % 
of  net  sales.  This  indicates  the  economy  in  the  use  of  capital 
that  comes  through  a  rapid  rate  of  stock-turn.  In  addition, 
the  store  with  a  high  rate  of  stock-turn  suffers  less  deprecia- 
tion on  its  merchandise. 


FINANCIAL  FIGURES 

The  average  inventory  of  merchandise  on  hand  at  the  be- 
ginning of  the  year  1919  in  the  retail  shoe  stores  from  which 
reports  were  received  was  $40,400.  The  average  inventory  of 
merchandise  at  the  end  of  the  year  1919  was  $53,500.  Thus 
the  average  amount  invested  in  merchandise  was  32.4% 
higher  at  the  end  of  the  year  1919  than  at  the  beginning  of 
the  year.  This  increase  is  to  be  accounted  for  primarily  by 
the  rise  in  prices  of  shoes. 


19 

From  the  financial  statements  that  were  received  with  the 
reports  for  the  year  1919,  the  ratio  of  current  assets  to  cur- 
rent HabiHties  at  the  end  of  the  year  has  been  worked  out. 
This  ratio  was  determined  for  one  hundred  forty-three  stores. 
In  one  store  the  current  assets  were  less  than  the  current 
liabihties.  In  sixteen  stores  the  current  assets  were  from  1.3 
to  1.9  times  the  current  habilities;  in  thirty  stores  from  2.0 
to  2.9  times;  in  twenty-three  stores  from  3.0  to  3.9  times; 
and  in  seventy -tlu'ee  stores  the  current  assets  were  more  than 
four  times  the  current  liabilities.  According  to  customary 
standards  of  rating  credits,  these  figures  indicate  that  a  large 
proportion  of  these  stores  were  in  a  sound  financial  condition. 
It  is  to  be  realized,  however,  that  these  reports  were  obtained 
from  the  more  progressive  stores  which  were  keeping  ac- 
counts that  showed  whether  or  not  they  were  making  a  profit. 
Such  stores  are  likely  to  be  in  a  stronger  financial  position 
than  other  stores  which  cannot  make  out  a  reliable  profit 
and  loss  or  net  worth  statement. 

Another  comparison  worked  out  from  these  financial 
figures  for  one  hundred  thirty-one  stores  was  the  ratio  of  ac- 
counts and  notes  receivable  to  average  monthly  sales.  In 
one  hundred  fourteen  stores  the  accounts  and  notes  receiv- 
able at  the  end  of  the  year  were  less  than  the  average  monthly 
sales  during  the  year.  In  seventy-one  stores  the  accounts  and 
notes  receivable  were  less  than  one-half  the  average  monthly 
sales. 

In  the  stores  in  which  the  accounts  and  notes  receivable 
were  less  than  one-half  the  average  monthly  sales,  the  ex- 
penses for  total  interest  and  for  losses  from  bad  debts  were 
low.  The  stores  with  a  low  ratio  of  accounts  and  notes  re- 
ceivable to  average  monthly  sales  commonly  showed  a  saving 
of  about  four-tenths  of  one  per  cent  of  net  sales  in  these  two 
items. 

The  ratio  of  accounts  and  notes  payable  to  average  monthly 
purchases  also  was  worked  out  for  one  hundred  forty  retail 


20 

shoe  stores.  Owino-  to  the  lack  of  figures  for  comparison 
with  previous  years,  the  full  significance  of  this  ratio  for  the 
shoe  trade  cannot  be  determined.  These  figures  should  indi- 
cate, however,  the  extent  to  which  credit  was  being  granted 
to  shoe  retailers  at  the  end  of  the  year  1919  by  shoe  manufac- 
turers and  wholesalers.  In  thirty-seven  of  the  retail  shoe 
stores  reporting,  the  accounts  and  notes  payable  at  the  end 
of  the  year  were  less  than  the  average  monthly  purchases  of 
merchandise.  In  forty-two  stores  the  accounts  and  notes 
payable  were  from  1  to  1.9  times  the  average  monthly  pur- 
chases, in  twenty  stores  from  2  to  2.9  times,  and  in  forty-one 
stores  the  accounts  and  notes  payable  were  more  than  3 
times  the  average  monthly  purchases.  The  highest  figure  for 
this  ratio  was  9.3  times.  More  than  one-quarter  of  these 
retail  shoe  stores,  therefore,  were  receiving  credit  at  the  end 
of  the  year  in  excess  of  their  average  purchases  for  a  three- 
months  period. 


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